Monday, December 12, 2011

Myths and facts about getting a mortgage

70 percent of those surveyed were under the impression that getting mortgage financing was out of their reach.

I recently read about a recent survey that asked potential home buyers why they were not buying in the current market. (Sorry, can’t remember where.) The survey found that about 70 percent of those surveyed were under the impression that getting mortgage financing was out of their reach, so they didn’t try. The survey also noted that only about 20 percent of all recent mortgages applied for were denied, although the reasons for those denials weren’t available.

The reality is that mortgages with down-payments as low as 3 1/2 percent are still available and veterans can still buy with no down-payment, but lenders have tightened up the mortgage process to eliminate the loose standards that they used during the boom years.

Getting a mortgage today isn’t much more difficult than it was when I bought my first property 30 years ago. There’s plenty of mortgage money around and lenders are happy to lend to qualified buyers. Buyers and the property that they plan to buy will be scrutinized by lenders and still need to meet most of the same criteria to get a mortgage:

- Buyers need reliable, steady employment or income stream and prove it to the lender’s satisfaction.

- Buyers must show that they are credit worthy with a credit report showing no recent late payments or “charge-offs” (i.e. creditors that have not been paid according to the terms of their financing agreements, unpaid charge cards that creditors wrote off, late student loans, car repossessions, unpaid judgments, etc.)

- Buyers need to have their debt under control. Monthly debt payments can not exceed limits required by the mortgage program that they would like to use. (The typical maximum debt allowed, including the projected mortgage payments, must typically be under 45 percent of the buyer’s gross income (before taxes). A recent change is that tax returns and tax payments must be up to date, filed with the IRS. The income that a buyer claims will be verified by the lender.

- The buyer has to have cash available for the down payment, closing costs and money left over as cash reserves in the event of an emergency. (Some lenders will consider funds in a retirement account to count toward reserves.)

- The buyer must be able to verify the source of funds for their down-payment money.

- The property being purchased needs to meet the lender’s guidelines and loan limits.

* It needs to be habitable, unless the buyer is using a rehab loan to purchase the property.

* Condos need to be in a financially stable condo association with condo documents and an association budget that meets the lender’s criteria.
* The property has to be worth at least what the buyer is planning to pay for it. The lender will verify the value and condition of the property with an independent appraiser.

5 myths about mortgage financing in the current mortgage environment.MYTH #1:
Mortgage money is hard to find because lenders would prefer not to give mortgages right now.
FACT #1:
There is plenty of mortgage money available at just about every lender.
While mortgage money is plentiful, credit is considered to be “tight” right now because lenders require more verifications than during the boom years. Qualified borrowers that state their situation truthfully have nothing to fear and should be able to get a mortgage.

MYTH #2:
The average person can't qualify to get a mortgage right now due to the “tight” credit market.
FACT #2:
While there is still high unemployment and the economy is still challenged, not everyone has been affected. The average person with a steady job, good credit and enough cash available for a down payment and closing costs can still get a mortgage at competitive rates. Down payment money can also be partially borrowed and/or taken from a retirement account.

MYTH #3:
Buyers need a large down payment to buy a house in the current market.
FACT #3:
Mortgages are available with all kinds of down payments. There are still low down payment programs available from very reputable sources at competitive interest rates. Veterans can still buy with as low as zero down. FHA and MHFA loans are still available with as little as 3 ½ percent down payment. Experienced, reputable real estate professionals that understand financing should be able to help locate the right financing from reputable lenders.

MYTH #4:
Buyers need to have perfect credit to get a mortgage.
FACT #4;
While most lenders won’t lend to borrowers with a history of bad credit, the reality is that most credit reports are not perfect.
A perfect credit score would be 850, but borrowers with credit scores of at least 740 qualify to get their mortgages at the best rates. The higher the credit score (using the Fair Isaacs credit scoring system that lenders use), the better the interest rate available to the borrower. There are some programs that will lend to borrowers with credit scores into the low 500s.

MYTH #5:
A job change, relocation or other change makes it harder to get a mortgage.
FACT #5:
That is true in some but not all cases.
Experienced, reputable real estate and mortgage professionals will assess each potential borrower’s situation on an individual basis. If the borrower is still employed in the same line of work that will usually be sufficient, provided that there has not been a period of unemployment between jobs. Sometimes, the process needs to be delayed a few weeks, until the borrower can provide a copy of the first check received from the new employer.

Mortgage financing rules change all the time. The best way to determine if you can get a mortgage is to speak with an experienced reputable lender. In the unlikely event that you don’t qualify for a mortgage now, a pro will help you put together a plan to help you work toward qualifying for a mortgage in the future.
Posted by Rona Fischman  December 12, 2011 02:00 PM

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